Section 314(1B) clarification

This query is : Resolved

Muralidharan (Querist)
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30 June 2011 30th June 2011

WITH DUE RESPECT TO THE FORUM MEMBERS, I am raising the query once again for further clarification:

Preamble of the Issue

Mr.X is a Director of the Company XYZ Private Limited
Mr.Y is a relative of Mr.X

Mr.Y who is the relative of Mr.X (Director of the Company) is being engaged as a consultant on a monthly payment of Rs.50000/- wef 1st April 2011. The provisions of Section 314(1B) is attracted for the above said appointment of Mr.Y as consultant. In my opinion this requires the following approval:

(1) Board of Directors prior approval.
(2) PRIOR approval of the Members of the Company by way of Special Resolution [Section 314(1B)] – That is Members resolution should be obtained prior to making the payment

(Note : Central Govt. approval is not required since the payment does not cross Rs.50000/-) (Kindly note that I am not taking into consideration the recent circulars enhancing the limit from Rs.50,000 to Rs.2.50 lacs

My above interpretation has been acknowledged and confirmed by some of this forum members. However one of my friend who happens to be a Company Secretary, says, that PRIOR APPROVAL of the members is not required for payments between Rs.20,000/- to Rs.50,000/-. He says that approval of the members can be obtained at the next general meeting held for the first time. I am not convinced by his opinion. I request this forum members to further clarify this issue. My intention is not to offend anybody including my friend. However since I want a better clarity on this issue, I am once again placing this issue before this forum.

With regards

Muralidharan

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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01 July 2011 Up to 50,000 in previous case and now up to 2.50 no approval is required.

The only approval required is that of Members of the comapny. Hod a EGM (Extra Ordinary General Meeting) and take the approval of the members.

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